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NASAA Names Top 9 Investor Threats for 2015

The North American Securities Administrators Association (NASAA), whose membership consists of securities administrators across all 50 states, territories, Canada and Mexico, released its top nine investor threats posing the greatest risk for investors for 2015.

NASAA's top identified threats include several hallmarks of classic fraudulent and other financial schemes alongside new product offerings. The NASAA's persistent threats include:

> Pyramid and other Ponzi schemes, which make the list under a new level of affinity fraud perpetuated by the internet. These schemes generally make investors money when the investor recruits new purchasers, which in turn fuels earlier investors, and so forth, rather than selling an actual product. These types of fraudulent schemes are spread through word-of-mouth, which these days involves the Internet and social media, notably because it is so easy to spread news and seek investments online.

> Regulation D, Rule 506 of the SEC's Securities Act governs private placement offerings that are generally highly illiquid and opaque with little oversight. Because state regulators have little authority over these transactions, fraudsters can operate schemes with less scrutiny. For instance, sellers are now allowed to advertise and generally solicit investment in these offerings without having to first file any documents with state or federal regulators, meaning investors must be more vigilant before investing.

> Risky Oil and Gas Drilling Programs continue to entice investors with potential high returns, thanks in part to horizontal drilling and hydraulic fracturing (fracking). On the other hand, scam artists keeping up with oil and gas headlines are able to market oil and gas properties to investors new to the field who are unfamiliar with the high risk involved, including the potential loss of their entire principal. High pressure sales tactics and deceptive marketing practices comprise some of the added risks in oil and gas programs.

> Internet and Affinity Fraud occurs when a scamster uses the internet to convince and deceive an investor into thinking a certain investment is safe, low risk or legitimate. For instance, just because a touted investment has a website doesn't mean the investment is legitimate. Setting up an internet website can costs as little as $10, which means that just making sure the website exists is not sufficient to ensure the product's validity. State regulators, on the other hand, are better able to confirm whether an investment is registered or a sales person is properly licensed and free from disclosures.

> Real Estate Schemes Including Those Utilizing Promissory Notes continues to plague the securities industry as the real estate market continues its recovery and products such as nontraded real estate investment trusts (REITs) are marketed to investors, sometimes in misleading ways. Investors are advised to perform their own due diligence, asking about the source of repayment, real estate appraisals, title reports, company financials and similar information.

The NASAA's identified emerging threats are:

> Binary Options, or securities in the form of option contracts that depend on an underlying asset's performance. The difference between binary options and traditional options is that the binary version considers just whether a stock price's change from start-to-expiration was positive or negative and pays a fixed sum based on this binary answer. The NASAA's identified threats for binary options include illegal distributions without meeting registration requirements, potential for fraud through misleading average returns, identity theft, refusals to return or pay out, abusive trading and manipulation of binary options trading software to generate losing trades (remember, they technically only must lose one point to be a "loss").

> Marijuana Industry Investments are an example of new products sold wherever medical (or recreational) marijuana is legal, such as in California. Because this headline-grabbing investment opportunity is so fresh, it is ripe for scam artists looking to exploit this emerging field. NASAA points to micro-cap companies selling low-priced securities that are highly speculative and, therefore, induce high risk. NASAA's regulators, for instance, cited "pump and dump" schemes as one example of what they are already seeing in the real world pertaining to marijuana investment activity, which includes not just the drug, but also its equipment, such as vaporizers, hydroponic supplies, lighting systems and security systems.

> Stream-of-Income Investments are marketed to investors looking for monthly returns and allow investors to sell a stream of income, such as pension or government disability payments. The great risk arises from a seller's legal right to redirect the payment, which may leave the investor with an unenforceable contract right. Additionally, benefits are contingent on the life of the seller, which means that veterans and disabled persons are often targeted to participate, often during financially stressful times and essentially at the expense of their future interests.

> Digital Currency and Cybersecurity make the list because of the great difficulty regulators have in trying to enforce industry rules online, much less obtain jurisdiction for such activity. Risks grow exponentially when the virtual currency suddenly loses value or evaporates, which can happen due to hacking, technical malfunction or simply because digital currency is not tangible like real-world funds.

If you have invested with a broker, financial adviser or firm whose unscrupulous conduct in the sales and investment activity of one of the above products or threats has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

News: Top Investor Threats (NASAA)

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